Chapter 7: GDP and CPI: Tracking the Macroeconomy Flashcards
What is Gross Domestic Product (GDP)?
The total value of all final goods and services produced in an economy during a given period, usually a year
What is aggregate expenditure?
The total flow of funds into the market for goods and services - the sum of consumer spending, investment spending, government purchasing of goods and services, and exports minus imports
How is GDP calculated?
GDP = C + I + G + (X-M)
What are the three ways of calculating GDP?
1) The value added approach: adding up total value of all final goods and services produced. 2) The expenditure approach: adding up total spending on all domestically produced goods and services. 3) The income approach: adding up total factor income earned by households from firms in the economy. All add up to the same amount.
What is real GDP?
The total value of all final goods and services produced in an economy during a given period, usually a year, calculated as if prices had stayed constant at the level of some given base year
Why are measures like GDP and price indexes important?
1) They plan an important role in formulating economic policy since policymakers need to know what’s going on in the economy and 2) They are important for business decisions b/c corporations and other players seek independent estimates when they don’t trust official numbers
What is the relationship between a country’s accounts and its economic state?
The more reliable the accounts, the more economically advanced the country is
What are national income and product accounts (national accounts)?
A method of tracking of the spending of consumers, the sales of producers, business investment spending, government purchases, and a variety of other flows of funds between different sectors of the economy
What is the “real” economy?
Flows of funds associated with the production and sale of goods and services
What economic sectors are connected through the circular flow of funds?
Government, households, firms, and the rest of the world via three types of markets: markets for goods and services, factor markets, and financial markets
What is consumer spending (consumption)?
Households engage in consumer spending by purchasing goods and services through the market for goods and services
What are government purchases?
Total purchases by federal, provincial, and municipal governments on goods and services
What is investment spending?
Spending on productive physical capital - such as machinery or construction buildings - and on changes to inventories
What are exports?
Goods and services sold to other countries
What are imports?
Goods and services purchased from other countries
What are final goods and services?
Goods and services sold to the final, or end, user
What are intermediate goods and services?
Goods and services - bought from one firm by another firm - that are inputs for production of final goods and services
What is value added?
(of a producer) the value of a producer’s sales minus the value of its purchases of intermediate goods and services
What is the difference between intermediate goods and services and capital investment?
Intermediate goods and services are used in production, whereas capital investment (i.e. machinery) will last for a number of years and it’s closely tied to current production
What are factor incomes?
Factor incomes consist of the income earned by factors of production, or inputs (i.e. worker wages, rent earned by leasing to firms, etc.)
What are non-factor payments?
Non-factor payments consist of the income earned by the federal government as a result of the production of goods and services. They are the difference between the prices paid for final goods and services and the amount received by factors of production, which include net indirect taxes and capital depreciation (i.e. sales tax, factory equipment wearing out, etc.)
What are net exports?
The difference between the value of exports and the value of imports (X-M)
